PepsiCo is testing new recipes

Indra Nooyi, one of the most powerful CEOs in the world, has plans that involve millions more Arab consumers
Nooyi accepts a typical Arab welcome: a tiny cup of potent black coffee and a moist date.
By Courtney Trenwith
Sun 02 Apr 2017 09:07 AM

Indra Nooyi demands attention. Not because she asks for it, but because she deserves it. One of the most powerful female CEOs in the world, her presence – and bright pink suit jacket – dominate the room. But sit her down and the boss of PepsiCo is warm, friendly and personable.

Struck by an opening question that could have derailed the less assured – is PepsiCo’s drive to make its products healthier an admission that they were harming consumers? – she reacts with an evenly-delivered rebuke.

“It’s not a question of harm; society was changing,” Nooyi says.

The Pepsi recipe was first developed by pharmacist Caleb Bradham in the 1880s and the first patent was registered in 1903. Healthier versions are now being invented.

“We went from an active society to a sedentary society and when you go to a sedentary society what you eat and drink has to change. Society was changing much more rapidly than any of us expected and I thought it was an opportunity for PepsiCo to change its product line for this new sedentary population.”

Nooyi is at the PepsiCo innovation centre at Dubai Science Park, where the company’s traditional products are being given Arab makeovers. This is where Lay’s baked potato chips with labneh and mint, 7Up with mint, and Quaker vegetable cumin soup were  invented.

The 61-year-old Indian-American takes great interest in the scientific labs that are separated from office desks by glass windows, before she walks into the kitchen where Chef Osama has prepared a spread of local dishes created with PepsiCo’s Quaker oats, including Saudi Arabia’s traditional kabsa and an Emirati breakfast dish called balaleet.

Indra Nooyi enjoyed Arabic produce such as dates while taste-testing healthy uses of PepsiCo products.

Nooyi accepts a typical Arab welcome: a tiny cup of potent black coffee and a moist date. She makes a statement that would surprise most in the Arab world: “I’ve never had dates before”.

Chef Osama hands her a small pot of bircher museli made with Quaker oats and offers an array of dates, mango, honey and other fruits from the Gulf. Nooyi chooses mango because “I grew up with mangoes and guavas”.  She is also a fan of the Yemeni honey. “It’s not so sweet as other honey,” she says. “It’s a phenomenal taste.”

But the question, she says, is: “How do we get everyone in the region to eat these healthy foods?”

Pepsi has drawn on creative advertising campaigns for decades, particularly as it competed againt arch rival Coca-Cola.

It may seem paradoxical that one of the world’s biggest sellers of soft drink and snacks is strategising how to entice consumers to healthier options, and perhaps it is partly for public show, but Nooyi has not survived in her role for more than a decade for no reason.

“Had we not changed, we wouldn’t be as successful as we are today. There’s no question about it,” she tells Arabian Business in an exclusive interview.

Soft drink – the core of PepsiCo for a century – now accounts for less than 25 percent of the company’s total revenues. And what soft drink is sold contains significantly less sugar, whether it is the standard Pepsi, with 30 percent less, or diet Pepsi with none.

Indra Nooyi sits on US President Donald Trump’s business council.

PepsiCo announced last October that by 2025 two-thirds of its drinks would have 100 calories or fewer from added sugar, per 350 millilitres.

About 25 percent of the company’s global revenue already comes from products it categorises as ‘everyday nutrition’, including Quaker oat products, Aquafina and healthier varieties of snacks, such as Forno (baked Lay’s potato chips) and SunBites.

Messing with the recipe of Pepsi that dates back to the 1880s and earns billions of dollars in revenue annually is potentially a career-ending move. But Nooyi is adamant.

“Clearly society changes and people’s tastes change; companies have to change too. One of the things we do as a consumer products company, we watch consumer trends, we study consumers constantly and we change our direction and our product offering with those consumer trends,” she says, referring to the rapid change in direction towards ‘free-from’ foods, especially sugar.

Chef Osama is tasked with creating healthy dishes with PepsiCo products.

“All of us are members of families … and as you think about the next generation, we are very careful about what we feed them. If you bring those habits into the company you quickly realise the next generation is eating and drinking differently, so here’s a great opportunity for us to cater to their tastes as opposed to trying to say you will eat and drink what we did 10 years ago. So it was a personal experience [that led to the strategy change], no doubt, but it was clearly guided by this humungous opportunity that stood in front of us.”

But convincing consumers that Pepsi remains flavourful, or that baked potato chips are as satisfying as the original fried version millions are accustomed to is not as easy as a new advertising campaign.

“You can’t have it all,” Nooyi concedes. “The original Pepsi, 7Up etcetera, they are phenomenal tasting products. Now when we start lowering the sugar, you can’t have the exact same taste … but it still tastes great.  “So what we have to do is start slowly training the consumer to accept the lower-sugar offering. It’s not going to happen overnight. We start to move the dial little by little and start reducing the sugar in small steps so the consumer trains the palette to get used to a lower sugar offering.

“If you’re someone who loves regular Lay’s, it’s a great tasting potato chip, but these baked Lay’s taste simply awesome, they just taste different. So don’t think of a fried chip when you eat this, think of it as a great crunchy, salty snack. If you approach it that way, it’s the best thing in the market place today.

“So it’s a question of, how do we talk to the consumer? [How do we entice] the consumer to this incredible new state of products that we have?”

The challenge is particularly acute in the Middle East, where obesity rates, and linked diseases such as diabetes, are among the highest in the world. The World Health Organization claims GCC countries are among the most obese in the world. Dubai Municipality warned in October that almost one in three children in the emirate aged 5-17 were overweight or obese.

The region also has a high youth population, which, Nooyi says, demands greater engagement with products than older generations.

“The millennials in particular need a lot of engagement. They want to buy things with a purpose, they want to understand where their products came from,” Nooyi says.

Engagement is not only via social media, but can also be relevant to the packaging. PepsiCo’s new water brand, LIFEWTR, features local artists’ work on the bottle.

“[Millennials] are reading the labels a lot more, and with LIFEWTR, particularly with the artwork on it, they love the fact that they’re supporting artists. So there’s a purpose to that water,” Nooyi says.

“[But] at the end of the day, nobody wants to compromise on taste so one thing you find uniformly in PepsiCo’s products is great taste, and that’s something we stress all the time.”

The Middle East’s youthful population offers enormous potential to a multinational firm that has arguably exhausted significant growth opportunities in many of the 200 countries that it sells in.

PepsiCo’s revenue of $62.8bn last year is more than the incomes of at least half of the world’s nations. But for it to maintain growth and market share, countries with younger populations and currently smaller markets are pivotal.

“Growth is oxygen … the top line is critical,” Nooyi states. “We don’t think of ourselves as a $62bn or $65bn company, we think of ourselves as reasonable sized companies in every country in which we operate.

“In the US, we’re very big; in Mexico, we’re very big; in the UK we’re very big. But if I look at each of the other countries in which we operate, we’re a billion, two billion dollars. You can easily grow off $1-2bn because many of these markets are just coming into the packaged goods world, they’re just seeking convenience.

“The global food and beverage business is a couple of trillion dollars. There’s a long way for us to gain a bigger share of that market.”

The Middle East is central to that philosophy.

“It’s a big market with huge potential, lots of young people. It’s a youthful, youthful set of countries and I think if we can take this portfolio of healthier products, more permissible, core products and offer it to the GCC market this should be a phenomenal offering for this market and we should see years of growth for this market,” Nooyi says.

Pepsi-Cola Company merged with Frito-Lay in 1965 to become PepsiCo.

“More than 50 percent of the world’s population is east of the Middle East. Today we don’t get 50 percent of our sales from markets in the Middle East and east, so I look at the Asia-Middle East region … as some of the biggest growth opportunities for the company and we intend to continue to focus on them, invest in them and make sure that whatever the ups and downs, we stay as a steady beacon to be able to not only provide products to this region but learn from them.”

As well as the innovation centre in Dubai, PepsiCo has manufacturing plants in Dubai and Jeddah. The later is the company’s biggest plant worldwide, and Nooyi says it is probably the biggest beverage plant globally.

“So we are making substantial investments in the region and we’ll continue to,” she says.

Nooyi is non-definitive, as expected for a listed company, when asked if that would include acquisitions.

Indian cricket team skipper Virat Kohli is the star endorser of Pepsi in India.

“If we find anything that’s interesting, sure, especially in the good-for-you space,” she says, specifically about the Middle East. Globally, PepsiCo “constantly” assess “everything”.

“At this point, we look at more than we ever looked at and we reject more than we ever looked at, because everything is priced too high. We’re quite careful in assessing an acquisition and making sure we can extract value from it,” she says.

As with most employers these days, Nooyi’s employees are also highly valued. That is particularly evidenced in Saudi Arabia, where PepsiCo has filled entire quality control labs with only women. In manufacturing plants and offices, walls have been erected to enable women to be employed while addressing government requirements that they be separated from men.

“When I was in Riyadh I had the chance to visit many of them. [They’re] some of the smartest, most intelligent, hard working women I’ve come across anywhere in the PepsiCo system,” Nooyi says.  “I think Saudi is sitting on an enormous talent base of women that, when tapped, is going to make Saudi an even bigger force in the whole Arab world.”

Indra Nooyi says engaging with consumers has become evermore important - and not only online but through instore displays and product packaging.

PepsiCo’s determination to include women in its Saudi workforce coincided with the start of Nooyi’s term as CEO. While she remains one of only a handful of women running multinational companies, the number of women in PepsiCo’s facilities in the kingdom has grown exponentially in recent years.

Nooyi says despite the kingdom’s strict regulations regarding gender segregation, it is “not right” to only hire men.

“We want to uplift Saudi as a country and I think just calling on the talent of half the population is not right, because you’ve got the other half who also went to university, have gotten the top grades and they’re enormously talented,” she says.

“In the past they didn’t have the opportunities to come to work but now that they can go to work, and companies like ours can provide the environment, we’re the net beneficiaries. I think we’re very fortunate that we can tap into that.”

Nooyi says PepsiCo is also working with governments that have floated the idea of a sugar tax. Unsurprisingly, she finds the suggestion unpalatable but her argument is well thought out.

PepsiCo’s product range has evolved over the past century to include juices, sandwich spreads and organic varieties.

“I am against any discriminatory tax,” she summarises.

“But having said that, let me just say one thing. I think the sedentary lifestyle of people did cause an increase in weight and the wrong kind of weight; obesity levels went up. I think governments that want to think about a sugar tax have to think about … what are you trying to solve? Are you trying to raise revenues or are you trying to solve a health issue?

“If you’re trying to address a health issue, let’s approach this in a more holistic way. We want consumers to shift to lower-sugar offerings, because water is great but people want a little bit of flavour and taste. The best thing for us to do is let us incentivise consumers to move to lower sugar offerings, so if you drink a ...sparkling beverage with 10, 20 calories, or 50 calories, don’t tax it.”

It is a forthright answer characteristic of Nooyi. But when our questioning ceases, she begins her own. While personal, her queries are warm and amiable. A magnificent trait that has served Nooyi well.

Subscribe to our Newsletter

Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.